Directors' Guarantees

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If you're in the business of supplying goods or services to other businesses, you'll find that many of your customers carry on business through companies. If any of those companies fail, while still owing you money, you might never receive the money owed to you, despite the obvious wealth of the company's owners.

Except in certain circumstances, the shareholders of companies are not personally responsible for the company's debts. That is, unless you insist you will not give credit to the company until the individuals who run the company give their personal guarantee in respect of the company's obligations to you.

The law requires that guarantees be in writing.

If it's not already part of your business practices, we recommend that you change to require written guarantees for the directors of your corporate customers in every case.

If you have any queries about this or any other aspect of business law then please contact us on 07 5443 9988 or [email protected].

Argon Law is a Sunshine Coast law firm based in Maroochydore. We are commercial lawyers and property lawyers and are eager to assist you in any way we can.

More Information

If you are in the business of supplying goods or services to other businesses, you will find that many of your customers carry on business through companies.

If any of those companies fail while still owing you money, you may never be able to recover the money owed to you, despite the obvious wealth of the company’s owners.

Except in certain limited circumstances, the directors and shareholders of companies are not personally responsible for the companies’ debts. That is unless you insist that you will not give credit to the company unless the individuals who own and/or run the company first give their personal guarantee in respect of the company’s obligations to you.

The law of guarantees requires that they must be in writing and the best place to obtain such a written guarantee is as part of a credit application that you require customers to complete before you first grant credit to them.

If this is not already an automatic part of your account opening procedures, then it needs to be.

Your lawyer can review your existing procedures and documentation or draft fresh documents for you to enable you to put in place binding guarantees from directors and shareholders of your corporate clients.

This information is of a general nature only is not to be relied on as legal advice. You need to seek your own legal advice.

If you have any queries about this or any other aspect of business law then please contact us on 07 5443 9988 or [email protected].

Argon Law is a Sunshine Coast law firm based in Maroochydore. We are commercial lawyers and property lawyers and are eager to assist you in any way we can.